Covid-19 is heavily bearish for global LNG sector

Covid-19 is heavily bearish for global LNG sector

BAKU, Azerbaijan, May 23

By Leman Zeynalova – Trend:

Covid-19 is heavily bearish for the global liquefied natural gas (LNG) sector, Trend reports citing Fitch Solutions Country Risk and Industry Research.

"The containment measures put in place to slow the spread of the virus led to widespread disruption to global economic activity. Our global economists now forecast a 2.8 percent contraction in global real GDP growth as of early May 2020, which is bleeding through into sharply lower natural gas demand in the power, industrial and commercial sector. Increased residential demand can provide a partial offset in some markets, but only to a limited degree. The loss of this gas demand is compounding the existing glut in the LNG market," Fitch Solutions said in its report.

The company recalls that over the past five years, global liquefaction capacity has been rising rapidly, flooding the market with new supply.

"Initially, China was able to soak a substantial share of this excess, as the government’s gas-switching policies drove the domestic gas market deeper into deficit. However, Beijing has since softened its policy approach and import demand growth has collapsed as a result. As a result, the global market was already facing a significant oversupply in 2020 and the outbreak of Covid-19 has severely worsened the outlook, driving spot prices to record lows," reads the report.

The negative price effects are being exacerbated by the outsize impact of Covid-19 on key consumer markets, according to Fitch Solutions.

"China, Japan and Western Europe are among those markets that have faced the sharpest deterioration in their economic outlooks as a result of the Covid-19. Combined they account for around two-thirds of global LNG imports and, as a result, demand losses in these markets will be hard to compensate for elsewhere," the report says.

Fitch Solutions believes that the outlook is brighter for buyers, although absorbing contracted volumes will pose challenges over the near term.

"Most buyers are struggling to absorb contracted quantities of LNG, due to weak demand and storage limitations. Contract terms vary, but generally include some flexibility to reduce contract volumes or defer or divert cargoes. Some buyers have also invoked force majeure, although these buyers are in the minority. In order for force majeure to apply, certain conditions must be met. Generally speaking, an event must have occurred that was beyond the party’s control and which has prevented that party from fulfilling its obligations under the contract. It is by no means clear cut as to whether Covid-19 would meet these conditions," reads the report.

Contracts are designed so that price risk is absorbed by the seller and volume risk by the buyer, as such, loss of demand in and of itself would not be grounds for force majeure, said Fitch Solutions.

"Additionally, the issue of force majeure is highly contract-specific and where the clause has been invoked, contract disputes have arisen. Despite these short-term challenges, market conditions are broadly favourable to LNG buyers and we see considerable scope for these buyers to negotiate more favourable contract and pricing terms. This trend was already in play in 2019, but the demand loss stemming from the Covid-19 outbreak has accelerated the trend. In light of this, we see upside to medium-term demand as low prices and flexible contract terms draw more buyers into the market."

---

Follow the author on Twitter: @Lyaman_Zeyn

Subscribe to Trend in Google News! Subscribe
Azerbaijan shares data on number of vaccinated citizens
Azerbaijan shares data on number of vaccinated citizens
Azerbaijan confirms 2,315 more COVID-19 cases, 981 recoveries
Azerbaijan confirms 2,315 more COVID-19 cases, 981 recoveries
Azerbaijan confirms 2,112 more COVID-19 cases, 882 recoveries (UPDATE)
Azerbaijan confirms 2,112 more COVID-19 cases, 882 recoveries (UPDATE)
Loading Bars
Latest
Azerbaijan's executive power in Aghdam opens tender for road overhaul
Inflation rate in Iran increases
Renewable energy dev't envisioned in Azerbaijan's national priorities - minister (PHOTOS/VIDEO)
UK says substantial differences remain with EU over Northern Ireland trade
Israel, UAE sign 'green corridor' agreement for vaccinated passengers - Israeli consulate in Dubai
Turkmenistan to connect grids of its Akhal, Balkan regions with new high-voltage line
Iran reveals COVID-19 data for October 24
Relations between Iran and Azerbaijan to continue based on mutual respect - Iranian FM
Kazakhstan boosts revenues from transporting cargo by air
Azerbaijan sees rise in total assets of local banks in September 2021
Georgia reports 3,436 coronavirus cases, 4,483 recoveries, 43 deaths
Azerbaijani MoD publishes video on events that took place last year this week (VIDEO)
Uzbekistan's CEC talks voters turnout as of 11.00
Total value of mortgage loans issued by Azerbaijani banks up in 9M2021
Prices of potatoes change in Uzbekistan
First VP Mehriban Aliyeva shares photo from visit to Zangilan with President Ilham Aliyev (PHOTO)
Daily COVID-19 case count at 1,677 in Kazakhstan
96 new positive cases of coronavirus detected in Kyrgyzstan
Azerbaijani banks increase issuance of consumer loans
Presidential elections kick off in Uzbekistan
Cargo ship on fire, spewing toxic gas off Canada’s Pacific coast: Officials
Tesla hikes price of Model X, Model S variants by $5,000
IRICA shares data on import of COVID-19 vaccine to Iran
Japan keen to invest in restoration of Azerbaijan's liberated lands
1,677 more COVID-19 cases reported in Kazakhstan
1 dead, 7 injured in shooting at off-campus party near Georgia university
Tesla posts a $1.62 billion profit in Q3 despite difficult car market
198 illegal migrants rescued off Libyan coast
10 envoys to be declared persona non grata: Erdogan
UN's Guterres welcomes Saudi Arabia's climate initiatives in call with King Salman
Presidential elections to be held in Uzbekistan
UK says substantial differences remain with EU over N.Ireland trade
New migrant caravan in Mexico pushes past blockade to head north
Aramco aims for net zero emissions from operations by 2050, CEO says
U.S. administers nearly 413 mln doses of COVID-19 vaccines
Chronicles of Victory: Azerbaijani president gives interview to Le Figaro newspaper on October 24, 2020 (PHOTO/VIDEO)
Chronicles of Victory: October 24, 2020
Buy/sell operations at Iran Mercantile Exchange growing
Iran unveils details of its trade turnover via Astara customs
Putin invites Israeli prime minister to visit St. Petersburg
Iran's Energy Exchange announces products to be on sale on October 24
Turkmenistan launches production of new types of paving slabs
Azerbaijani banks ramp up business lending since early 2021
Georgia and Ukraine talk cooperation within European integration
Iran reveals COVID-19 data for October 23
UK records another 44,985 new coronavirus cases
Tactical-Special Exercises of Azerbaijani Special Forces end (VIDEO)
First Vice-President Mehriban Aliyeva shared photos from Aghali village of Zangilan district on her official Instagram page (PHOTO)
Azerbaijani, Iranian FMs talk recent relations developments
Members of Nizami Ganjavi International Center join call towards cop26
Arayik Harutyunyan's visit to Russia is solely private - embassy of Azerbaijan
NATO not ready for equal dialogue with Moscow - Russian defence chief
Saudi-led coalition says destroys Houthi vessels, bomb-laden boats site
Kazakhstan updates forecast for completion of grain harvesting
IRENEX shares data on sales of Sepahan Oil Company in energy exchange
EIB to help reduce COVID-19 effects on Georgian SMEs
Moscow comments on reports about holding Russia-Armenia-Azerbaijan summit on Nov.2021
Azerbaijan shares data on number of vaccinated citizens
Azerbaijan confirms 2,315 more COVID-19 cases, 981 recoveries
First Vice-President Mehriban Aliyeva shared footage from Zangilan visit on her Instagram page (VIDEO)
Turkmenistan to participate in EXPO-2025
Georgia and Ukraine sign protocol on economic cooperation
Weekly review of key events in Azerbaijan's ICT sector
Azerbaijan's liberated lands to contribute to expansion of TRACECA corridor - minister
Weekly review of main events in Azerbaijan's transport sector
Saudi Arabia targets net zero emissions by 2060
Russia registers an all-time high of 37,678 coronavirus cases in past day
Uzbekistan eyes foreign technology for better local polymer production
Turkmen delegation to pay working visit to Iran
Azerbaijan records growth in loan portfolio of local banks in 9M2021
Turkmenistan’s Turkmenbashi refinery eyes producing hydrogen
Azerbaijan, Singapore to co-op in construction of geostationary satellites
IRICA shares data on Iran's trade turnover with SCO member states
Iran sees increase in exports of non-oil products from Hormozgan Province
Weekly review of Azerbaijani precious metals market
Kazakhstan unveils trade indicators with its TOP-3 EU partners
Turkmenistan approves new procedure for allocating investments from Stabilization Fund
Azerbaijani MoD observes exercises in liberated Lachin district (VIDEO)
Russian Health Ministry greenlights joint COVID-19 and flu vaccination
Central Bank discloses volume of loans issued to Azerbaijan's districts
Georgia records surge in tourist visits from Uzbekistan
Tourist inflow from Kazakhstan to Georgia soars
Iran boosts exports through customs of Zanjan Province
Azerbaijan notes decrease in banking sector' profit
Azerbaijan sees rise in mortgage lending
Iranian currency rates for October 23
Weekly review of Azerbaijani currency market
Georgia releases data on COVID-19 cases for October 23
New customs post in Azerbaijan to speed up cargo movement along North-South corridor (PHOTO)
Azerbaijan, Armenia to sign new documents in Moscow
Azerbaijani oil prices increase
Georgia sees decrease in tourist inflow from Azerbaijan
Turkmen company to purchase material, technical resources via tender
Kazakh energy company opens tender to buy metal corners
Kazakh oil company opens tender to buy spares
Kazakh KazMunayTeniz opens tender for Caterpillar equipment maintenance
Azerbaijan's Central Bank unveils data on currency exchange operations for Jan. through Sept. 2021
Azerbaijani fund presents concept for restoration of liberated territories
EDB purchases bonds of Kazakh KEGOC JSC
US corporate workers to start returning to offices next month
All news